Background

In 1984 VAT was introduced on newspaper advertising, which had previously been zero-rated. Reliefs for adverts placed by charities were restored in 1986. The relief at that stage was limited to non-classified advertising which was intended either to educate people in the objects of the charity or to encourage fund-raising. The relief was also restricted to adverts placed in a newspaper, periodical or magazine.

Because of the difficulties in determining what was meant by the term ‘non-classified’ the relief was extended to include classified advertising in April 1989. At the same time the opportunity was taken to extend the range of places in which an advert would qualify to include programmes, annuals, leaflets and similar publications, and on posters.

In April 1991 the relief was extended to zero-rating for airtime purchased on television, radio and cinema for qualifying adverts.

Problems continued with ‘dual purpose’ advertisements, such as recruitment advertisements with a ‘qualifying message’ displaying the charity’s objects, and in September 1996 the relief for recruitment advertisements was withdrawn. An exception was made for Voluntary Service Overseas (VSO) volunteers and similar adverts.

Following a review of Charity taxation in1999 a more far-reaching change in reliefs was effected in April 2000. This was done by recasting the scope of the relief in Item 8 and introducing the current qualifying notes 10A to 10C. All remaining restrictions in the medium used to advertise and the purpose of the advert were removed. The relief for associated design and production costs was extended accordingly where there was an associated supply of advertising.

An extra-statutory concession was also introduced giving relief to the supply of various goods connected with charitable collections (see ESC 3.3 in Notice 48 Extra-statutory concessions or Notice 701/58 (HMRC website) Charity advertising and goods connected with collecting donations). This included relief on certain items contained in direct mailing applications.

UK VAT law

8. The supply to a charity of a right to promulgate an advertisement by means of a medium of communication with the public.

8A. A supply to a charity that consists in the promulgation of an advertisement by means of such a medium.

8B. The supply to a charity of services of design or production of an advertisement that is, or was intended to be, promulgated by means of such a medium.

8C. The supply to a charity of goods closely related to a supply within item 8B.

The word ‘promulgate’ is used in Items 8,8A, and 8B. Words carrying a similar meaning are broadcast, propagate, spread, disseminate, circulate and publish. The word carries an active meaning to what constitutes an advertisement. The charity should be paying to use someone else’s time or space.

These provisions are subject to the following notes:

10A Neither of items 8 and 8A includes a supply where any of the members of the public (whether individuals or other persons) who are reached through the medium are selected by or on behalf of the charity.

For this purpose ‘selected’ includes selected by address (whether postal address or telephone number, e-mail address or other address for electronic communications purposes) or at random.

10B None of items 8 to 8C includes a supply used to create, or contribute to, a website that is the charity’s own.

For this purpose a website is a charity’s own even though hosted by another person.

10C Neither of items 8 to 8C includes a supply to a charity that is used directly by the charity to design or produce an advertisement.

The effect of the notes is to make restrictions in the relief in respect of direct mailshots (see Postal appeals packs), charity websites and in-house supplies (see In-house supplies, below).

What is an advertisement?

There is no statutory definition of the word ‘advertisement’. It may be taken as a notice made available to the public in any form with the purpose of making a message known whether commercial or otherwise. The reproduction of a charity logo, even when unaccompanied by any further text, is an advertisement. The supply of advertising is the purchase of somebody else’s time or space.

In order for zero-rating to apply the supply must be to a charity. A supply to a charity’s subsidiary trading company will not qualify for relief (see VCHAR2100).

In-house supplies

Charities may choose to produce their own advertising material. This may be either by way of a supply used to create or contribute to a website giving information about the charity or by the production of display material which is then put into use directly or by the direction of the charity. Zero-rating does not apply to these supplies - see notes 10B and 10C of the Schedule reproduced above.

Medium of communication

If the public is reached by the message given by the charity then the supply to the charity is zero-rated under Items 8 to 8C. Any medium of communication may be used. New media will be found from time to time but the test is essentially the same one. Means of communication such as signwriting, peelable plastic stickers or banners and repeating loop systems, such as those found in post offices, will all qualify as media.

Communication with the public

It is essential that there is effective contact with the public at large. Hence we would accept a cinema advert as being within Item 8 but not an advert placed on a DVD. By its nature a DVD is normally the property of a single household and does not reach the wider public. This applies both to advertisements inserted on a DVD and a DVD describing the work of a charity, even if the DVD promotes the objects of a charity or serves a fund-raising purpose. A CD-Rom promoting a charity would not attract relief for the same reason.

The liability of the supply can be apportioned if necessary. For example, a charity needs 100 banners for public display but finds that the print run is barely more expensive for 200 and orders the larger amount, using only the first 100 for public display.

The preparation of posters or other items falling outside the reliefs for books, etc for use in-house by a charity (in its own offices) are standard-rated as the public would not have access to these.

What services qualify for relief?

Where there is a single supply of services of preparing and publishing an advertisement the whole supply will qualify for zero-rating under Item 8A. Where the preparatory services/goods are supplied separately they will fall within Items 8B and 8C.

Services or goods which qualify for relief under Items 8B and 8C extend beyond the cost of publishing the advert to the costs of producing the advert.

Supplies which qualify include:

• printing

• design or artwork

• typesetting.
Supplies which do not qualify include:

• courier services

• distribution and mailing services.
This is because the services of distributing a leaflet, poster or other publication are not themselves promulgations of an advertisement.

Postal appeals packs

Many charities send out appeal packs by post. These packs are NOT covered by the relief for advertising as Note 10A specifically excludes direct mail packs.

A printing company normally puts these packs together for the charity. Where there is a multiple supply of a package consisting entirely of items printed on paper or card and the items have a common link, the supplier can use a “package test” to determine the overall VAT liability. If there are more zero-rated items than standard-rated items then the supplier can zero rate the whole package. See Notice 701/10 (HMRC website) Books etc for more information.

Since August 2003 ESC 3.3 for charity stationery can be used in conjunction with the “package test”. This means that pre-printed appeals letters and outer and return envelopes will count as zero-rated for the “package test”. However, printed lapel stickers count as standard-rated for the “package test” as they are only eligible for zero-rating under the ESC when they are given away in acknowledgement of a donation - if a charity includes them in a postal appeal pack it is giving the sticker away before any donation has been received.

Where an appeals pack contains an item which is not printed on paper or card, each item supplied to the charity must bear its own individual VAT liability - the supplier cannot use the “package test”. Many charities include ‘token’ items such as a charity pen, ribbon or bulb. These are taxable at the standard rate when supplied to the charity. We maintain that the supply of the pack to the charity in such instances is a multiple supply of goods and not a single supply with dominant and ancillary elements.

Appeal letters whose primary purpose is to appeal for money

Item (e) in Extra Statutory Concession 3.3 allows relief for pre-printed letters the primary purpose of which is to appeal for money for charity. It includes ‘thank you’ letters and ‘remember us in your will’ letters. It does not include lobbying ‘write to your MP’ letters.

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